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Precision camera services started the year with total assets of $120,000 and total liabilities of...

Question:

Precision camera services started the year with total assets of $120,000 and total liabilities of $40,000. The company is a sole proprietorship. The revenues and the expenses for the year amounted to $140,000 and $50,000, respectively. During the year, there were no new capital contributions, and the owner withdrew $45,000. What is the amount of the owner's equity at the end of the year?

Accounting Equation:

The accounting equation is based on the double-entry system and based on this equation, the balance sheet statement is also prepared. This equation maintains the balance between and the total sum of capital and liabilities.

Answer and Explanation:

Previous Equation

Assets = Liabilities + Capital

120,000 = 40,000 + Shareholders' Equity

Shareholders' Equity = 120,000 - 40,000 = $80,000

After the adjustments:

Assets = Liabilities + Capital

120,000 - 45,000 (cash withdrawn) + 140,000 (Cash received on revenue) - 50,000 (Cash paid on expenses) = 40,000 + (80,000 - 45,000 + 90,000)

165,000 = 40,000 + 125,000

Hence, from the above equation, we can say that the owner's equity at the end of the year is $125,000.

Notes:

As the liabilities are not increased or decrease, it means that all the revenue is the cash revenue and all the expenses are the cash expenses.


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